Financial Advice

Dave Ramsey: Good Stuff or Fraud?

Google that and you find all kinds of things. I've been sitting on this one for about two years. At one time, I had all kinds of links to things. As people get better with Google, I find that's no longer necessary.

To the point, Dave Ramsey - particularly his program "Financial Peace" which is marketed through his "Total Money Makeover" program - is a controversial topic and he is a controversial person in the financial world. Without a doubt, he is an expert self-promoter and a fantastic salesman. But what about the product he sells - is it good or not?

I say, within the scope of whom it was intended for, it is better than average. Outside its scope, the program suffers a bit.

The program seems geared toward those who have a higher than average income and who also have a fair amount of debt. Financial Peace meets its kryptonite when you have:
A) A person with below average income - regardless of amount of debt.
B) A person with little to no debt and a higher income.
C) A regular person who needs insurance or investment advice.

Pros:
- Christian based principles.
- Simple, almost slogan-like, guiding concepts. Only 7 "Baby steps."
- Getting out of debt is good.
- Saving money is good!
- Not spending frivolously is good (can you hear that, Congress!?).
- Working on a budget (a plan) is very good.
- Communication with one's spouse on all things, including financial, is very good!

- Dave himself really has a kind heart. You can tell when he talks to people.
- Dave has a way of boiling things down to very simple principles when looking at options. Great idea for "should I buy/sell."

Cons
The investment advice given by Dave Ramsey is simply erroneous.
Most investment advisers (including a number of his "ELP's") simply do not agree with Ramsey.
Main thing here is that Dave's suggestions are based on the market of the early 1990's (when he began teaching this program), as well as the old Primerica system of advisement - which was good for one thing: making Primerica rich. Today, the government has enacted more stringent controls and has drastically devalued the dollar in recent years. This changes the landscape dramatically. Some are not as kind, and some say Dave is outright misleading or naive.

Dave's advice on insurance is sometimes spotty.
For example: Dave always wars against "whole life" insurance. Always. Problem is, there are some people that do not qualify for cheaper term life, and can only buy whole life.

Dave seems out of touch with reality on some things. 
Back in the early 1990's, it was easy to buy a good used car for $1000 that would last several years and get you "from point A to point B." Thanks in part to inflation, and in part to "Cash for Clunkers" those days are gone. The car Dave talks about is really going to cost about $5000, and Dave appears to simply have no clue. Some have said that it has been too long since he has had to buy one.

Dave's advice on jobs is overly simplified.
Dave often advises that some people simply get a better job or otherwise raise their income. Some people, due to a combination of parts of 1) ability (or lack thereof), 2) initiative (or lack thereof), 3) intelligence (or lack thereof), and 4) location - simply cannot get a better job. This is the Achilles heel of the Dave Ramsey plan - the low income family. For them, debt may be necessary for certain things.

Dave's advice on credit is really spotty. 

ONE CANNOT GET A PRIME RATE HOME LOAN WITHOUT A GOOD CREDIT SCORE.
Certainly, one can get a home loan without a credit score if one shops well, but it will not be a good rate.

THESE DAYS, JOBS REQUIRE CREDIT CHECKS.
Again, briefly, many people will point out that Dave hasn't had to apply for a job in over 20 years, and just cannot see that having good credit is needed for some things.

GETTING GOOD RATES ON INSURANCE DEPENDS ON A GOOD CREDIT SCORE.
And this is the third main area that Dave's credit advice really fails so many people.

Dave never went through the plan himself.
Dave filed bankruptcy and started over, based on what he states on his radio show. He never paid off all the old debt. He advises people do what he himself did not do. He advises people avoid what he himself did.

Show me someone who got rich on Dave's Plan. 
Now there are many who worked their way out of debt, but where are the millionaires? Oh, yeah, millionaires get that way by hard work and starting companies themselves. The only people who have made themselves rich via investments are those who made a business of investing. Nobody following Dave's advice and putting money into a Roth IRA did so to the point that they got rich. Nope - they got rich first, then set aside investment money.


Summary
In a nutshell, if you keep to what he says about debt only, it is a good plan. Otherwise, keep a good credit score, get investment advice from a professional, and get your insurance advice from a professional, and just skip over parts where Dave talks about that.


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